Mixed reaction as Government moves to shield heavy industry from spiralling energy costs

THE UK Government is extending a compensation scheme to help shield heavy industry from rising energy costs and guard against “carbon leakage” – but the measures have received mixed support from industry.

Government has extended the Energy Intensive Industries (EII) compensation scheme for a further three years and has doubled its budget as it seeks to shield industries including chemical, steel and paper manufacturers from spiralling energy costs and encourage greater electrification. The scheme provides business with relief for the costs of the UK Emissions Trading Scheme (ETS) and Carbon Price Support mechanism in their electricity bills, given that UK electricity costs are higher than for competitors in other countries. The support follows a consultation by Government that concluded that “there continues to be a risk of carbon leakage due to indirect emission costs for some sectors. This means that there is a risk that the indirect emission costs found in the electricity price could lead to the displacement of production, and associated greenhouse gas emissions that would not have happened if climate rules and policies across jurisdictions were implemented in the same way.”

UK Steel Director General Gareth Stace said: “The 3-year extension of the EII compensation scheme and the increase in the level of relief provided by it delivers on a long-standing industry ask and gives the UK steel sector a much-needed reduction in electricity costs. This increase in compensation is a key priority for the steel sector and is a much-needed step to tackling the industrial electricity prices that hold the UK steel sector back from competing with our European counterparts.”

Director General of the Confederation of Paper Industries (CPI) Andrew Large said: “The CPI welcomes the extension of the existing carbon price floor (CPF) compensation scheme that addresses the cost of carbon on industrial electricity prices.”

Steve Elliott, CEO of the UK Chemical Industries Association (CIA), welcomed the news though said the measures were a missed opportunity: ““It’s good news and confirms the much-needed support on electricity costs for a further three years. However, this only helps a handful of chemical sites around the UK and amounts to only a small portion of the policy cost present on their fuel bill, given the huge escalation in gas, power and carbon prices since mid-2021. In particular, the doubling of carbon prices over the last 12 months has seen an increase in indirect cost being passed on to energy-intensive industries like ourselves, through energy bills. With eligibility not being extended to reflect this increase, it is a missed opportunity.”

Elliott said the CIA will continue to work with Government, including its promise to consider further measures to support business, which includes increasing the renewable obligation exemption to 100%. The Government said further details will be announced in the coming weeks.

The Government also announced that the EII scheme will be extended to cover companies that manufacture batteries for electric vehicles as it seeks to attract more investment in the growing industry.

Peter Rolton, Executive Chairman of Britishvolt, which is constructing a battery manufacturing plant in Northumberland on a site that used to house a coal-fired power plant, said: “This is a positive step from UK government, clearly recognising the strategic importance of battery manufacturers, and other industry that has intensive energy needs, on the roadmap to net zero, and the urgent need for them to become and remain internationally competitive in light of high energy bills.”